Costco Wholesale Corporation Reports Second Quarter and Year-to-Date O

    Business Editors

    ISSAQUAH, Wash.--(BUSINESS WIRE)--March 2, 2005--Costco Wholesale Corporation (Nasdaq: COST) announced today its operating results for the second quarter (12 weeks) and first half (24 weeks) of fiscal 2005, both ended February 13, 2005.
    Net sales for the second quarter of fiscal 2005 increased 10% to $12.41 billion from $11.33 billion during the second quarter of fiscal 2004. Net income for the second quarter of fiscal 2005, which included certain one-time items, increased 35% to $305.5 million, or $.62 per diluted share, compared to $226.8 million, or $.48 per diluted share, during the second quarter of fiscal 2004.
    Net income during the quarter was positively impacted by a one-time $52.1 million income tax benefit (covering the years 1996-2003) resulting primarily from the settlement of a transfer pricing dispute between the United States and Canada. Additionally, in response to the Securities and Exchange Commission's recent letter concerning accounting standards related to leases, the Company adjusted its method of accounting for leases (entered into over the past twenty years), primarily related to ground leases at certain owned warehouse locations that did not require rental payments during the period of construction. A cumulative pre-tax, non-cash charge of $16.0 million was recorded as a preopening expense in the second quarter of fiscal 2005. Prior periods' financial results will not be restated due to the immateriality of this amount to the consolidated statements of income and consolidated balance sheets. Without the impact of the $52.1 million income tax benefit and the $16.0 million ($10.0 million after-tax) cumulative charge to preopening expenses, net income for the second quarter of fiscal 2005 would have been $263.3 million or $.54 per share, reflecting a 16% increase in net income over the second quarter of the prior year and an income tax rate for the quarter of 37.54%.
    Net sales for the first half of fiscal 2005 increased 10% to $23.75 billion from $21.64 billion during the first half of fiscal 2004. Net income for the first half of fiscal 2005 increased 29% to $498.6 million, or $1.02 per diluted share, compared to net income for the first half of fiscal 2004 of $387.0 million, or $.82 per diluted share. Without the impact of the second quarter tax benefit and the cumulative charge to preopening expenses (above), net income for the first half of fiscal 2005 would have been $456.5 million, or $.94 per diluted share, reflecting an 18% increase over the first half of the prior year.
    Comparable sales for the fiscal second quarter (12 weeks) and fiscal first half (24 weeks) of fiscal 2005, both ended February 13, 2005, were as follows:

12 Weeks 24 Weeks --------------- --------------- US 6% 6% International 12% 10%

Total Company 7% 7% =============== ===============

    Reported net sales were reduced by the implementation of Emerging Issues Task Force Issue No. 03-10 ("EITF 03-10"), "Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers," which was effective at the beginning of the Company's fiscal 2004 third quarter on February 16, 2004. Had sales for the 12-week and 24-week periods last year been reported under EITF 03-10, total Company reported net sales increases would have been 11 percent and 11 percent, respectively, and total Company comparable sales increases would have been 8 percent and 8 percent, respectively.
    The Company today also reported net sales of $3.78 billion for the 4-week retail reporting month of February, the four weeks ended February 27, 2005, an increase of 9% from $3.46 billion in the same four-week period of the prior fiscal year. For the 6-month retail reporting period of September through February, the twenty-six weeks ended February 27, 2005, which includes the first two weeks of the Company's fiscal third quarter, the Company reported net sales of $25.62 billion, an increase of 10% from $23.38 billion during the comparable period of the prior fiscal year.
    Comparable sales for the 4-week retail-reporting month of February and the 26-week retail-reporting period of September through February are as follows:

4 26 Weeks Weeks -------------- ------------- US 5% 6% International 14% 10%

Total Company 7% 7% ============== =============

    Had sales for the 4-week and 26-week periods last year been reported under EITF 03-10, total Company reported net sales increases would have been 10 percent and 10 percent, respectively, and total Company comparable sales increases would have been 7 percent and 8 percent, respectively.
    Costco currently operates 451 warehouses, including 333 in the United States, 64 in Canada, 15 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 25 in Mexico. The Company also operates Costco Online, a U.S. electronic commerce web site, at www.costco.com; and earlier this week launched its Canada electronic commerce website, at www.costco.ca. The Company plans to open 14 to 16 additional new warehouses (including the relocation of three to four warehouses to larger and better-located facilities) prior to the end of its 2005 fiscal year end, on August 28, 2005.
    A conference call to discuss these second quarter results is scheduled for 8:00 a.m. (PST) today (March 2, 2005) and is available via a webcast on www.costco.com (click on Customer Service, About Costco, and lastly "Webcasts").

    Certain statements contained in this release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that the Company expects, or anticipates may occur in the future. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions including exchange rates, the effects of competition and regulation, consumer and small business spending patterns and debt levels, rising costs associated with employees (including health care and workers' compensation costs), conditions affecting the acquisition, development, ownership or use of real estate, actions of vendors, and other risks identified from time to time in the Company's public statements and reports filed with the SEC.

COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)

12 Weeks Ended 24 Weeks Ended -------------------------- --------------------------- February 13, February 15, February 13, February 15, 2005 2004 2005 2004 ------------ ------------- ------------- -------------

REVENUE Net sales $12,412,578 $ 11,330,214 $ 23,752,522 $ 21,640,036 Membership fees 245,499 218,760 483,558 430,416 ------------ ------------- ------------- ------------- Total revenue 12,658,077 11,548,974 24,236,080 22,070,452 OPERATING EXPENSES Merchandise costs 11,056,064 10,101,977 21,188,551 19,322,099 Selling, general and administrative 1,185,122 1,084,605 2,316,808 2,117,018 Preopening expenses 22,996 4,216 33,381 14,341 Provision for impaired assets and closing costs 4,000 3,000 6,800 7,000 ------------ ------------- ------------- ------------- Operating income 389,895 355,176 690,540 609,994 OTHER INCOME (EXPENSE) Interest expense (8,980) (8,261) (18,622) (16,736) Interest income and other 24,779 13,072 40,369 20,975 ------------ ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 405,694 359,987 712,287 614,233 Provision for income taxes 100,242 133,195 213,682 227,266 ------------ ------------- ------------- ------------- NET INCOME $ 305,452 $ 226,792 $ 498,605 $ 386,967 ============ ============= ============= =============

NET INCOME PER COMMON SHARE: Basic $ 0.64 $ 0.49 $ 1.06 $ 0.85 ------------ ------------- ------------- ------------- Diluted $ 0.62 $ 0.48 $ 1.02 $ 0.82 ============ ============= ============= =============

Shares used in calculation (000's) Basic 474,221 458,228 470,034 457,929 Diluted 493,700 481,537 491,714 480,885

Dividends per share $ 0.10 $ -- $ 0.20 $ --

--30--APG/se*

CONTACT: Costco Wholesale Corporation Richard Galanti, 425-313-8203 Bob Nelson, 425-313-8255 Jeff Elliott, 425-313-8264

KEYWORD: WASHINGTON INDUSTRY KEYWORD: BANKING SUPERMARKETS RETAIL EARNINGS CONFERENCE CALLS SOURCE: Costco Wholesale Corporation

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